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A Re-Examination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View

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  • R. Glenn Hubbard
  • Darius Palia

Abstract

One possible explanation that bidding firms earned positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less developed capital markets. Examining 392 bidder firms during the 1960s, we find the highest bidder returns when financially unconstrained' buyers acquire constrained' targets. This result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing. We also find that bidders generally retain target management, suggesting that management may have provided company-specific operational information, while the bidder provided capital-budgeting expertise.

Suggested Citation

  • R. Glenn Hubbard & Darius Palia, 1998. "A Re-Examination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View," NBER Working Papers 6539, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6539
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    References listed on IDEAS

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    Cited by:

    1. Shin, Hyun-Han & Kim, Yong H., 2002. "Agency costs and efficiency of business capital investment: evidence from quarterly capital expenditures," Journal of Corporate Finance, Elsevier, vol. 8(2), pages 139-158, March.
    2. Doukas, John A. & Kan, Ozgur B., 2008. "Investment decisions and internal capital markets: Evidence from acquisitions," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1484-1498, August.

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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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